Want to listen to this post instead? It’s episode #24 of my podcast:
This interview from 2012 with Warren Buffett is only eleven minutes long, but it’s Buffett at his best. I watched it for research on another project, but the notes were worthy a post of their own.
1/ Keep a low overhead. “I have every possession I want. I have friends with a lot more possessions but in some cases I think the possessions possess them rather than the other way around.”
My brother is looking for a house to buy and I told him “the more expensive the house, the more expensive the stuff.” More square feet means more roofing shingles, a larger HVAC system, and more paint for the walls. A smaller house means less overhead and more flexibility.
Start-ups fail when they don’t keep a low overhead. Sophia Amoruso succeeded becasue she did. So did the comedians Judd Apatow talked to. Jay Leno told him that his day job (mechanic) paid for his necessities so that he was free to experiment as a comedian.
Burton Malkiel told this story about when Jack Bogle met Buffett.
“When Jack Bogle first met Warren Buffett they were at a hotel together and Jack recognized Warren, went up and introduced himself, and he said to Warren, ‘you know the thing I really like about you is you have rumpled suits just the same as I do’ and Jack and Warren have become very good friends.”
And it’s not just money. Marc Andreessen pointed out that the biggest cost isn’t money, it’s time and the missed opportunity to do something else. Buffett – apparently – avoids that.
2/ When something works, just do it. “With Notre Dame’s record, who am I to argue with that.”
Buffett said that he liked the Notre Dame Play Like a Champion sign so he had a similar one made for his office. Sometimes things just work and we can use them without knowing why. This idea is a second cousin to Nassim Taleb’s idea of lecturing birds how to fly.
3/ Wait for the right pitch. “Ted Williams described in his book, The Science of Hitting, that the most important thing for a hitter is to wait for the right pitch. That’s exactly the philosophy I have for investing.”
You have to know what the right pitch is (see #5) but also be able to wait. Bob Iger, the CEO of Disney said, “doing nothing can be a very powerful action unto itself.” Barry Ritholtz and Nick Murray suggested the don’t just do something, sit there strategy.
This is hard to do, wrote Nassim Taleb, because “it is much easier to sell ‘look what I did for you’ than ‘look what I avoided for you.’”
4/ Use the right tools. “It (the phone) and a pile of reading material are the primary instruments. It’s just a question of gathering facts, which come in mostly via print and thinking about them. If I can make one good decision a year, we’ll do okay.”
When asked about a computer Buffett said “not in my office.”
When Twitter was released Seth Godin wondered, “will Twitter make me better at the things I want to be good at?” His answer? “No.”
Nate Silver pointed out the difference between using the right tool and being right about the tool. “It’s not like the stat-heads won a unilateral victory…it’s more like people are saying ‘we have to be smarter about making decisions and use these different tools at our disposal.’”
To evaluate baseball players you need to use the best tool. To teach people you need to use the best tool. To invest you need to use the best tool. Silver, Godin, and Buffett all found the best tools for them.
5/ Pattern recognition. “I’ve been reading IBM’s annual report every year for 50 years. This year I saw something that sort of clicked.”
Pattern recognition saves time and money. The best way to see patterns is through experience. The best way to gain experience is to read.
“Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.” – Otto Von Bismark
Start-ups come to Andy Weissman because of his pattern recognition. Investors come to Jim Chanos because of his pattern recognition. Alex Blumberg started a company because of his pattern recognition.
Buffett too has great pattern recognition. At the 2016 Berkshire meeting he said:
“pattern recognition gets very important in evaluating humans and businesses and pattern recognition isn’t 100%, but there are certain things in businesses we’ve seen over and over.”
Thanks for reading, I’m @mikedariano on Twitter.